Buying apartments looks straightforward until a hidden leak becomes a five-figure special assessment or a loan term locks you into a costly corner. Prevention pays. The following list identifies the recurring traps investors fall into and the practical steps to keep returns intact.
1. Get the governance right before you buy
Buildings run well when the board and management are competent, responsive, and transparent. In condo and co-op deals, that often means hiring or retaining a reliable body corporate manager who sets maintenance schedules, enforces bylaws, and keeps the books clean, similar to a proven HOA management company. A Phoenix HOA that actually fines short-term rental violations protects sleep and resale value. Read board minutes, review vendor contracts, and meet the manager, then make the hire or pass.
2. Test the association’s financial health
Weak reserves and high delinquencies crush returns. Fannie Mae treats projects with more than 15 per cent of dues delinquent as risky, which limits buyer financing and pushes down prices. Request three years of financials, the latest reserve study, and an updated aging report. If the budget shows less than 10 per cent allocated to reserves or collections are sloppy, underwrite a special assessment. Buy the numbers, not the brochure.
3. Price insurance like a line item, not a guess
Premiums in Florida and Louisiana have surged, with some coastal properties seeing increases of 30 to 200 per cent since 2022. Wind and hail deductibles often sit at 2 per cent of insured value, which can turn a storm into a balance-sheet event. Get current quotes, confirm the carrier’s AM Best rating, and compare replacement cost assumptions. If insurance kills the deal at renewal, it was never a deal to begin with. Lock the cost before closing.
4. Hunt down deferred maintenance early
Roofs do not age like fine wine. Florida’s SB 4-D now mandates milestone structural inspections around year 30, and New York City’s Local Law 11 requires facade checks for buildings six stories and taller. Those reports often telegraph six-figure projects. Walk the roof, scope the plumbing, and read every line of the inspection. Set a CapEx plan with realistic timelines, then escrow replacement reserves at $250 to $300 per unit per year.
5. Underwrite to the law, not the dream rent
Rent rules cap growth and shape operations. Oregon’s statewide limit ties increases to CPI plus 7 per cent, Los Angeles has its Rent Stabilization Ordinance, and St. Paul’s 3 per cent cap rattled development until amended. Model rent increases within the legal limit, factor in notice periods, and validate fees allowed to pass through. The pro forma must obey the code. Confirm with a local attorney before penciling profit.
6. Install tenant standards that stand up
Income verification, rental history, and objective screening keep cash flow predictable and lawsuits rare. HUD fair housing guidance requires consistent criteria and documentation. A Chicago owner who applied a written 3x income rule and verified employment avoided a costly discrimination claim and reduced eviction filings. Publish the criteria, apply them uniformly, and keep records. Good tenants compound returns like interest.
7. Read the loan’s fine print like a contract lawyer
Debt terms make or break the hold. Freddie Mac Small Balance loans often require a 1.25 DSCR and can carry a 5-4-3-2-1 step-down prepayment schedule, while bridge loans may float with rate caps you must actually buy. Model a 200 basis point rate shock and a 10 per cent vacancy hit. If the deal fails that test, renegotiate or walk. Cheap money is not affordable if exit options vanish.
8. Plan your exit on day one
Liquidity is a strategy. Condos that are nonwarrantable by Fannie Mae or FHA shrink your buyer pool and depress pricing. On multifamily, valuation turns on cap rates and net operating income, not comps. A seller using a 1031 exchange has 45 days to identify and 180 days to close, which can force rushed choices. Line up multiple exit paths, track lender guidelines, and keep the property “warrantable” through disciplined operations.
A little paranoia is healthy. We invest to grow wealth, not headaches. Put these checks on a single-page checklist, verify each with documents, and make the offer only when the story and the numbers match. Hope is not a pro forma. Prevention is.
